Apresenta

1
The Shareholders Meeting Scope and Procedures -
Brazil 2nd Latin American Corporate Governance
Roundtable
Presentation by Bruno Rocha

Dynamo Asset Management
2
The Shareholders Meeting Scope and Procedures -
Brazil

• What is the context
• Brazil ranks well by usual corporate governance
  criteria for
• shareholders meetings procedures
• Cumulative voting
• Voting by proxy ( though not by mail )
• Small to call E.S.M. (5 of total capital)
• Easy to obtain list of shareholders
• Shares are not blocked before a S.M.
• - However, most shareholders meetings are a
  non-event

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2nd Latin American Corporate Governance Roundtable
3
The Shareholders Meeting Scope and Procedures -
Brazil

• Why ?
• Almost all listed companies have a defined
  controlling
• shareholder (or a group of)
• High leverage from preferred non-voting shares
• separation of cash flow right from control
  rights
• which, coupled with
• Imperfect civil law
• Lack of jurisprudence and specialized courts
• No tag along rights

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2nd Latin American Corporate Governance Roundtable
4
The Shareholders Meeting Scope and Procedures -
Brazil

• Leads to
• High value of control
• Structural conflict of interest between
  controlling
• and minority shareholders
• Dividends / Retained earnings
• Related party transactions
• De-listing procedures

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2nd Latin American Corporate Governance Roundtable
5
The Shareholders Meeting Scope and Procedures -
Brazil

• US / Europe x Brazil
• Concentration of controlling power changes the
• corporate governance agenda from
• Independent board members
• Poison pills, staggered boards
• Proxy mechanisms ...
• ... to issues not directly related to
  shareholders meetings
• Tag along rights
• Conflicts of interest (dividend policy, related
  parties)
• De-listing procedures
• As a consequence, shareholders meetings in
  Brazil are not a
• democratic exercise.

Dynamo
2nd Latin American Corporate Governance Roundtable
6
The Shareholders Meeting Scope and Procedures -
Brazil

• Shareholders Meetings in Brazil
• Procedures
• Prior notice
• 8 days
• Problem for ADRS
• Nomination to the board of directors
• Only for voting shares
• Guaranteed for holders of 20 of voting shares
• Possible with less than 20 through cumulative
  voting

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2nd Latin American Corporate Governance Roundtable
7
The Shareholders Meeting Scope and Procedures -
Brazil

• Shareholders Meetings in Brazil
• Procedures
• Representation
• By power of attorney
• Bureaucratic but effective process
• Installment and Election for the Audit Board
• Installment 5 of non-voting or 10 of voting
  shares
• Election One seat for non voting
• One seat for voting with
  10 of shares
• Three seats for controlling
  shareholders

Dynamo
2nd Latin American Corporate Governance Roundtable
8
The Shareholders Meeting Scope and Procedures -
Brazil

• Shareholders Meetings in Brazil
• Procedures
• Right to put items on the agenda
• Not clearly defined in the law
• Possible if included in Matters of General
  Interest
• Voting in situations of conflict of interest
• Conflicted shareholder cannot vote
• Problems Definition of conflict / non-voting
  shares do not vote
• 7. Fair amount of disclosure is granted by law

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2nd Latin American Corporate Governance Roundtable
9
The Shareholders Meeting Scope and Procedures -
Brazil

• Conclusion
• Quality of shareholders meetings in Brazil is
  poor not because of the law, but rather because
  of the concentration of ownership
• Participation (and voting) in shareholders
  meeting is always important, even if meaningless
  because decisions have already been made
• But it is crucial when minority shareholders
  may influence the decision
• Situations of conflict of interest
• Corporate restructurings (de-listings,
  spin-offs, mergers)

2nd Latin American Corporate Governance Roundtable
Dynamo